- Reported billings for first four
months up 7.8% at £17.500 billion
- Reported revenue for first four
months up 15.9% at £4.846 billion, up 0.9% at $6.037 billion, up
5.1% at €5.657 billion and flat at ¥680 billion
- Constant currency revenue up 3.4%,
like-for-like revenue up 0.7%
- Constant currency net sales up 4.0%,
like-for-like net sales up 0.7%
- First four months revenue, net sales
and profits well above budget and ahead of last year
- Constant currency net debt at 30
April 2017 up £344 million on same date in 2016, with average net
debt in first four months of 2017 up by £415 million over same
period in 2016, an improving trend over the first quarter, although
it continues to reflect strong acquisition activity, including debt
acquired on the merger with STW of approximately £150 million and
continuing share buy-backs
WPP (NASDAQ:WPPGY) today reported its 2017 Annual General
Meeting Trading Update.
The following Chairman’s statement was referred to at the
Company’s 45th Annual General Meeting held in London at noon today
and is available on the Company’s website:
“First, a few comments on current trading.
In the first four months of 2017, reported revenue was up 15.9%
at £4.846 billion. Revenue in constant currency was up 3.4%,
continuing to reflect the weakness of sterling against the US
dollar, the euro and other major currencies. On a like-for-like
basis, excluding the impact of acquisitions and currency
fluctuations, revenue was up 0.7%, compared with the same period
last year, an improvement over the first quarter growth of 0.2%.
Reported net sales were up 16.7% at £4.168 billion, up 4.0% in
constant currency and up 0.7% like-for-like, almost the same as
first quarter growth of 0.8%. The gap between revenue growth and
net sales growth in April reversed the trend seen in the first
quarter, continuing to reflect the scale of digital media purchases
in media investment management and data investment management
direct costs.
The pattern of revenue and net sales growth in the first four
months of 2017 is generally the same as the first quarter of the
year, with the one month of April showing stronger revenue growth,
particularly in the United Kingdom and Asia Pacific, Latin America,
Africa & the Middle East and Central & Eastern Europe, with
Western Continental Europe weaker and marginally softer net sales
growth. For the first four months, there was like-for-like revenue
and net sales growth in all regions and business sectors, except
North America and data investment management, with the United
Kingdom improving markedly in the month. On a like-for-like basis,
public relations and public affairs continued to be the strongest
sector, as in the first quarter of 2017, with advertising and media
investment management showing an improving trend.
Regional review
North America, with year-to-date, like-for-like revenue
and net sales growth of -2.7% and -1.6% respectively, continued to
be the weakest performing region, with advertising and media
investment management, data investment management and parts of the
Group’s healthcare businesses weaker, partly offset by stronger
growth in the Group’s public relations and public affairs, branding
& identity and digital, eCommerce and shopper marketing
businesses.
The United Kingdom, with year-to-date, like-for-like
revenue and net sales growth of 5.6% and 5.1% respectively,
improved markedly over the first quarter, with the Group’s
advertising and media investment management, public relations and
public affairs and branding & identity businesses, showing
stronger growth than the first quarter.
Western Continental Europe, with year-to-date,
like-for-like revenue and net sales growth of 4.2% and 3.0%
respectively, somewhat softer than the first quarter, with all
markets, except Austria, Ireland, the Netherlands, Spain and Turkey
performing well in the first four months.
Asia Pacific, Latin America, Africa & the Middle East and
Central and Eastern Europe, strengthened in April, with
year-to-date, like-for-like revenue and net sales growth of 0.8%
and 0.5% respectively, compared with -0.1% for both revenue and net
sales in the first quarter. All sub-regions showed improvement,
particularly in Asia Pacific, Latin America and Central &
Eastern Europe. In Asia, all markets except Greater China, Malaysia
and Singapore grew strongly. In mainland China, the Group’s media
investment management, public relations and public affairs and
healthcare businesses improved strongly in April, with parts of the
Group’s data investment management and digital, eCommerce and
shopper marketing sectors continuing to slow.
Business sector review
Advertising and Media Investment Management
In constant currencies, advertising and media investment
management revenue grew by 8.0%, with like-for-like growth of 1.6%
in the first four months, a significant improvement over the first
quarter growth of 7.1% and 0.2% respectively. However, these
figures continue to reflect the weaker trading conditions in the
Group’s media investment management businesses in North America and
the Middle East and the strong comparative in the first four months
of last year of almost 7% like-for-like growth. Net sales grew 7.6%
in constant currency, with like-for-like growth of 0.2%, also
showing a strong improvement in like-for-like net sales growth
compared with the first quarter -0.3%. The Group’s media investment
management businesses grew strongly in all other regions and
sub-regions, particularly the United Kingdom, Latin America and
Africa. The Group’s advertising businesses continue to be
challenged in the mature markets, especially North America and
Western Continental Europe, where some of the restructuring costs
incurred in recent years have been directed.
Data Investment Management
On a constant currency basis, data investment management revenue
fell 5.0%, with like-for-like revenue down 3.9% in the first four
months. The decline in net sales, as in the first quarter, was less
significant, with constant currency net sales -2.9% and
like-for-like -1.6%. In the United Kingdom, Latin America and
Africa, like-for-like net sales grew strongly, as in the first
quarter, with North America, Western Continental Europe and Asia
Pacific remaining difficult.
Public Relations and Public Affairs
In constant currencies, public relations and public affairs
revenue and net sales were up 5.8% and 4.9% respectively, slightly
slower than the first quarter, with like-for-like revenue and net
sales up 3.8% and 3.2% respectively, still the strongest performing
sector, as it was in the first quarter. In April, the United
Kingdom showed very strong growth with Western Continental Europe
and Asia Pacific slightly weaker, compared with the first
quarter.
Branding and Identity, Healthcare and Specialist
Communications
In constant currencies, at the Group’s branding and identity,
healthcare and specialist communications businesses (including
digital, eCommerce and shopper marketing), net sales growth was
2.3%, with like-for-like net sales growth 2.0%, fractionally weaker
than the first quarter, but still the second strongest performing
sector. All businesses in this sector, except parts of the Group’s
specialist communications and healthcare communications businesses,
performed well in the first four months.
Operating profitability
In the first four months, on a constant currency basis, revenue,
net sales and profits were ahead of the quarter one revised
forecast, budget and last year.
As indicated in the first quarter trading update, our quarter
one revised forecasts are similar to budget, with like-for-like
revenue and net sales growth up around 2%.
For the remainder of 2017, the focus remains on improving
revenue and net sales growth, driven by our leading position in
horizontality, faster growing geographic markets and digital,
premier parent company creative and effectiveness position, new
business and strategically targeted acquisitions. At the same time,
we will concentrate on meeting our operating margin objectives, by
managing absolute levels of costs and increasing our cost
flexibility, in order to adapt our cost structure to significant
market changes and by ensuring that the benefits of the
restructuring investments taken in recent years continue to be
realised.
Balance sheet highlights
Average net debt in the first four months of this year was
£4.654 billion, compared to £4.239 billion in 2016, at 2017
exchange rates. This represents an increase of £415 million, an
improvement over the first quarter. Net debt at 30 April 2017 was
£5.156 billion, compared to £4.812 billion in 2016 (at 2017
exchange rates), an increase of £344 million, a significant
improvement compared with the £474 million higher net debt at the
end of the first quarter of 2017. The increased average and period
end net debt figures, reflect the significant net acquisition
spend, share buy-backs and dividends in the twelve months to 30
April 2017, and the impact of the net debt acquired on the merger
with STW in Australia, more than offsetting the improvements in
working capital.
In May 2017, the Group issued €250 million of 3 year floating
rate bonds with a coupon of 3 month EURIBOR plus 0.32%. The first
coupon covering the period from May to August was set at 0%. The
bonds provide medium term liquidity taking advantage of current low
interest rates.
Acquisitions
In line with the Group’s strategic focus on new markets, new
media and data investment management, the Group completed 17
transactions in the first four months; 8 acquisitions and
investments were in new markets and 12 in quantitative and digital
and 1 was driven by individual client or agency needs. Out of these
transactions, 4 were in both new markets and quantitative and
digital.
Specifically, in the first four months of 2017, acquisitions and
increased equity stakes have been completed in advertising and
media investment management in the United States, Croatia,
China and India; data investment management in the United
Kingdom and Ireland; in digital, eCommerce & shopper
marketing in the United States, the United Kingdom, Ireland and
China.
A further 3 acquisitions have been completed since 30 April in
digital, eCommerce & shopper marketing in the United
States and Spain.
Return of funds to share owners
As outlined in the 2015 Preliminary Announcement, the
achievement of the previous targeted pay-out ratio of 45% one year
ahead of schedule, raised the question of whether the pay-out ratio
target should be increased further. Following that review, your
Board decided to increase the dividend pay-out ratio to a target of
50%, to be achieved by 2017, and, as a result, dividends increased
by an overall 17.0% in relation to 2015, and a dividend pay-out
ratio of 47.7%. In 2016, dividends increased overall by a further
26.7% (including the proposed final dividend of 37.05p), reaching
the recently targeted pay-out ratio of 50% one year ahead of
schedule. Your Board will continue to review the question of
whether the dividend pay-out ratio should be further increased,
although any increase in the pay-out ratio has to be balanced
against the continuing attractive opportunities to reinvest
retained earnings in the business.
During the first four months of 2017, share buy-backs remained
at the same level as the first quarter, with 10.0 million shares,
or 0.8% of the issued share capital, purchased at a cost of £180
million and an average price of £17.91 per share, with 2.0 million
shares being purchased as Treasury stock and 8.0 million shares
purchased by the ESOP Trusts. Further share buy-backs continued in
May and June and the Group’s objective remains to repurchase 2-3%
of the issued share capital.
Outlook
Macroeconomic and industry context
2016, the Group’s thirty first year, was another record year,
following successive post-Lehman record years in 2011, 2012, 2013,
2014 and 2015, six record years in a row, despite a generally low
global growth or tepid environment. Top line growth remained
strong, with operating profits and margins meeting and exceeding
targets and all regions and sectors showing growth on almost all
metrics. 2017 has started more slowly, with like-for-like revenue
and net sales growth of just under 1%, but with renewed and
encouraging net new business wins, further confidential assignments
won globally in the United States and the Middle East, and further
wins to be announced and opportunities to be explored over the
coming months.
Generally, the world seems trapped currently in a nominal GDP
growth range of 3.0-4.0%. Historically, the BRICs or Next 11,
located in Asia Pacific, Latin America, Africa & the Middle
East and Central & Eastern Europe offered higher growth rates.
After all, that is where the next billion middle-class consumers
will come from. However, in the last few years Brazil, Russia and
China have all faced various challenges and slowed, although India
remains the one BRIC star currently continuing to shine (so far,
despite demonetisation and GST issues). Whilst that diminishing
growth gap has been countered somewhat by better prospects in the
Next 11, CIVETS and MIST markets like Mexico, Colombia, Vietnam,
Indonesia, the Philippines, South Africa, Turkey and Egypt, the
growth rates of the mature markets of the United States, the United
Kingdom and Western Continental Europe have also improved, albeit
from relatively low levels of growth. That continues to be the case
with the short to medium-term prospects in the United States, at
least, strengthening under the Trump administration, which is
clearly much more strongly pro-business, and much more
business-connected than the Obama administration, outlining planned
pro-growth tax, infrastructure investment, spending and regulatory
reform, although implementation has been delayed. The prospects in
the United Kingdom are more mixed as the possible post-Brexit vote
scenarios will play out over the next two years and uncertainties
about the outcomes increase, although a successful outcome for the
incumbent Government in the forthcoming General Election should
provide more wiggle room to negotiate a deal around a transition
agreement and/or free movement and keep Tory hard-line Brexiteers
in check. The four leading Western Continental European economies,
Germany, France, Italy and Spain, also still face political
uncertainty, although Germany and Spain are strengthening
economically.
In these circumstances, clients face challenging top line growth
opportunities and uncertainties. And although inflation may pick up
in the United States because of stimulative economic policy and in
the United Kingdom because of the weakness of sterling, generally
inflation remains at low levels, resulting in limited pricing
power. As a result, there remains considerable focus on the
short-term and cost and the finance and procurement functions are
dominant, certainly equal or more powerful than marketing, rightly
or wrongly, and the siren calls of consultants suggest cost based
solutions.
In addition, if you are running an established business, you are
faced with three simultaneous discombobulating forces -
technological disruption from disintermediators, those like Uber or
Airbnb or Amazon in the transportation, hospitality and retail
industries; the zero-based budgeting techniques of companies like
3G Capital, Reckitt Benckiser and Coty in consumer package goods
and Valeant and Endo in the pharmaceutical industries (although
their models have become somewhat discredited); and, finally, the
attentions of activist investors such as Nelson Peltz, Bill Ackman
or Dan Loeb. These pressures have intensified recently, in the last
three to six months with a perfect storm being created by this
trifecta of forces, reflected, for example, in the significant
psychological impacts of the aborted Kraft Heinz bid for Unilever
and the Trian investment in Procter & Gamble. And these winds
are unlikely to shift or abate until interest rates return to more
normal historical levels. They are causing the distortions that
investors like Warren Buffett identified many years ago. The slow
but solid growth prospects of baked beans or tomato ketchup are
attractive, when you can borrow long-term at virtually zero
interest rates.
Not helping either in focusing on the long-term, is the average
term life of S&P 500 and FTSE 100 CEOs at 6-7 years, CFOs at
4-5 years and CMOs at 2-3 years. As a result, it is not surprising
that since Lehman at the end of 2008, the combined level of
dividend payments and share buybacks as a proportion of retained
earnings at the S&P 500 has steadily risen from around 60% of
retained earnings to over 100%. In effect, managements are
abrogating responsibility for reinvesting retained profits to their
institutional investors. In fact, in seven of the last eight
quarters the ratio has exceeded or almost reached 100%, tapering
off in the last two quarters as stock market indices and share
prices reached new highs and the relative attraction of buy-backs
lessened.
This emphasis on the short-term and consequent disinclination to
invest for the long-term may be misplaced. Our over ten-year
experience of measuring brand valuation clearly shows that the
strongest innovators and strongest brands generate the strongest
top line growth and total shareholder returns. If you had invested
equally over the last decade in the top 100 brands identified by
our annual Financial Times/Millward Brown BrandZ Top 100 Most
Valuable Global Brands survey, you would have outperformed the
S&P 500 index by over two thirds and the MSCI by over three and
a half times, more than most, if not all, active money managers can
claim. Investing in innovation and strong brands yields enhanced
returns. Perhaps surprisingly, corporate structures that seem to
offend customary good corporate governance may deliver better
long-term results. Controlled companies like the Murdochs’ Newscorp
and Fox or the Roberts’ Comcast or Zuckerberg’s Facebook or Brin
& Page’s Google or Bezos’ Amazon or, now, Spiegel’s Snap may
provide the confidence and stability needed to take the appropriate
level of risk.
Given this macro-economic background, it is not surprising that
clients are generally grinding it out in a highly competitive
ground game, rarely resorting to a passing game or Hail Marys. Both
volume and price-based growth are hard to find. Recently reported
calendar 2016 and first quarter 2017 results generally reflect
this, for example, in the auto, retail, consumer package goods and
pharmaceutical industries. Although top line growth may be hard to
find and sales guidance missed or just met, bottom lines are met or
exceeded. As top line growth opportunities become more and more
pressurised, acquisitions and mergers become even more attractive
as a growth opportunity, particularly if they present opportunities
for significant cost synergies and relatively unleveraged balance
sheets can be supplemented by still historically low cost long-term
debt. One, no doubt self-interested, investment banker raised the
possibility of the first $100 billion cash/debt financed
acquisition to surpass the previous world record $60 billion
Bayer/Monsanto deal.
Our industry is no different. Competition is fierce and as image
in trade magazines, in particular, is crucial to many, account wins
at any cost are paramount. There have been several examples
recently of major groups being prepared to offer clients up-front
discounts and payments as an inducement to renew contracts, heavily
reduced creative and media fees, extended payment terms, unlimited
indirect liability for intellectual property liability and cash or
pricing guarantees for media purchasing commitments, even though
the latter are difficult for procurement departments to measure and
monitor in the future, as the relevant variables ebb and flow. As
some say, you are only as strong as your weakest competitor. These
practices cannot last and will only result eventually in poor
financial performance and further consolidation, the premium being
on long-term profitable growth. Our industry may be in danger of
losing the plot. Once you accept benchmarking as a means of
evaluation you become a cost and are viewed as a source of funding
or insurance, rather than an investment or value added and recent
industry results have reflected this increased pressure and
inconsistencies. Some are storing up problems for the next
generation of management.
Not surprising then that your Company's top line revenue and net
sales organic growth continued to hover around the 3% level and on
a cumulative basis for the last two years around 6%, as it has done
in previous sets of consecutive years. In the first half of 2016
growth was around 4%, due to weaker comparatives and in the second
half at around 2% due to stronger comparatives.
2017 is unlikely to be much different. There seems little reason
for an upside breakout in growth in terms of worldwide GDP, or
indeed a downside breakout, despite the possibility of an increase
in interest rates in the short-term. Interest rates are likely to
continue to remain at historically low relative levels, longer than
some think. Whilst Trumponomics may well result in an increase in
the United States GDP growth rate and the United States is the
biggest ($18 trillion) GDP engine out of a total of $74 trillion
worldwide, political uncertainties in Europe, West and East, the
Middle East, the PyeongChang Peninsula, Chinese focus on
qualitative growth and the longer-term recovery of Latin America,
probably mean that stronger growth will be harder to find outside
the United States. America First, if the new Administration’s plans
are implemented, will almost definitely mean a stronger American
economy, at the very least in the short- to medium-term.
2017 is neither a maxi- or mini-quadrennial year, although it
will be somewhat influenced by the build-up for the Russian World
Cup and the mid-term Congressional elections, both in 2018 and,
perhaps, the PyeongChang Winter Olympics. Nominal GDP growth should
continue to be in the 3.0-4.0% range, with advertising as a
proportion remaining constant overall, with mature markets
continuing at lower than pre-Lehman levels, counter-balanced by
under-branded faster growth markets growing at faster rates. In our
own case, budgets indicate top line revenue and net sales growth of
around 2%, reflecting the impact of a lower net new business record
in the latter part of 2016, although new business activity and
conversion rates have recently started to improve, and a faster
rate of growth in the second half, primarily reflecting easier
comparatives.
The human element
And finally, let me dig a little deeper into the results that we
announce today; not just the numbers, pleasing though they are, but
rather into the nature of those numbers and how they have been
achieved. And I am prompted to do so by the continued and
impressive advances of Artificial Intelligence and the publicity
and the speculation that such advances increasingly attract.
Most of the Group’s companies already make profitable use of
artificial intelligence. Wherever modern technology can perform
complex tasks with speed and accuracy, WPP companies are quick to
embrace it. That process will undoubtedly continue. But much of the
most valuable work that WPP undertakes on behalf of our clients is
work that is beyond the capability of even the most sophisticated
algorithm – and will be for many, many years to come.
In the design of brands, in the positioning of brands, in the
building of brands, in the maintenance of brands - yes, hard,
research-based facts are of course essential. But at least as
important for continued commercial success is an intuitive
understanding of human nature and how best to engage it. And for
that you need human beings of exceptional talent.
So, let me take this opportunity, on behalf of the board of WPP,
our management and our share owners, to recognise publicly the true
parents of our financial performance: those tens of thousands of
inventive, creative individuals in our operating companies who
between them craft the elegant solutions to our clients’ briefs.
Our debt to them is immense - and I would like it to be formally
recorded.”
This announcement has been filed at the Company Announcements
Office of the London Stock Exchange and is being distributed to all
owners of Ordinary shares and American Depository Receipts. Copies
are available to the public at the Company’s registered office.
The following cautionary statement is included for safe harbour
purposes in connection with the Private Securities Litigation
Reform Act of 1995 introduced in the United States of America. This
announcement may contain forward-looking statements within the
meaning of the US federal securities laws. These statements are
subject to risks and uncertainties that could cause actual results
to differ materially including adjustments arising from the annual
audit by management and the Company’s independent auditors. For
further information on factors which could impact the Company and
the statements contained herein, please refer to public filings by
the Company with the Securities and Exchange Commission. The
statements in this announcement should be considered in light of
these risks and uncertainties.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170607005640/en/
WPPSir Martin SorrellPaul RichardsonLisa HauFeona McEwanChris
Wade+44 20 7408 2204orKevin McCormackFran Butera+1 212 632
2235orJuliana Yeh+852 2280 3790www.wppinvestor.com
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